Europe holds the key to the current risk asset rally, according to experts
D-Day. Angela Merkal and Nicolas Sarkozy need to work together to find a deal REUTERS

European index futures rose on Monday, following small gains for Asian shares, and the euro firmed 1 cent after the leaders of France and Germany pledged to unveil a plan to solve the euro zone's sovereign debt crisis by the end of the month.

Commodities were mostly stronger, helped by optimism on action in Europe and better-than-expected U.S. jobs data on Friday that eased fears of renewed recession in the world's biggest economy.

The Europeans would now seem to be singing from the same hymn book and while some form of solution to the crisis is still a ways off, it now at least seems plausible, said Cameron Peacock, market analyst at IG Markets.

Euro STOXX 50 index futures rose 1 percent. Futures for Germany's DAX and France's CAC-40 also gained around 1 percent, while financial spreadbetters in London called the FTSE 100 <.FTSE> to open up as much as 0.8 percent. <.EU> <.L>

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.5 percent, while Tokyo markets were closed for a public holiday.

Australian <.AXJO> and South Korean <.KS11> shares gained, but Hong Kong stocks <.HSI> fell 0.3 percent, hit by declines for financials and some property developers while Shanghai's main index <.SSEC> lost 0.4 percent. <.AX> <.KS> <.HK> <.SS>

Fears of a possible hard landing in the world's second-largest economy have roiled Hong Kong and mainland markets over the past couple of months, hurting banking, property and resources-related shares the most, although some players now see a buying opportunity.

Chinese stocks are pricing in negative earnings growth to perpetuity, Citi analysts said in a note on Monday. From these levels, markets have risen in nine out of ten cycles. Increasingly, thoughts need to turn toward what to buy rather than sell.


European policymakers have been under pressure from volatile financial markets to get to grips with the euro zone crisis, which many fear is heading inexorably toward a default by Greece -- and perhaps others -- that could unleash turmoil in the banking system.

Underlining the urgency of finding a fix, stricken Franco-Belgian lender Dexia agreed early on Monday the nationalization of its Belgian banking division, the first victim of the two-year-old crisis.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said after talks in Berlin on Sunday that their goal was to come up with a sustainable answer for Greece's woes, agree how to recapitalize European banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes on November 3-4.

The euro rose around 0.8 percent to $1.3475, from $1.3375 on Friday, when it had come under pressure following ratings downgrades of Italy and Spain.

The downgrade had also hit U.S. share markets, with the S&P 500 <.SPX> ending Friday down 0.8 percent. S&P 500 futures were up 1.1 percent on Monday, pointing to a firmer start on Wall Street. <.N>

Despite the euro's gains, many market players remained cautious about the outlook for the single currency, noting that Europe's leaders have often fallen short in past attempts to deal with the debt crisis.

The positive response could simply reflect the fact that positioning is now more balanced following earlier risk reduction, Todd Elmer, currency strategist at Citi in Singapore, said in a research note.


Hopes for progress in Europe helped improve sentiment in credit markets, with a modest tightening of spreads measured by iTraxx's Asia ex-Japan investment grade corporate index.

Oil firmed, building on Friday's gains on the back of U.S. payrolls data showing employers added more jobs last month than analysts expected, which eased fears of renewed recession in the world's biggest consumer.

Brent crude rose 0.2 percent to $106.07 a barrel and U.S. crude gained 0.6 percent to $83.50.

But copper fell 0.8 percent to around $7,310 a tonne, giving up some of the gains from last week's bounce that saw it post its biggest weekly gain in six months.

Gold, which in recent weeks has switched from a negative to a positive correlation with riskier assets such as industrial commodities and stocks as safe haven investors turned instead to the dollar, rose 0.8 percent to around $1,650 an ounce.

(Additional reporting by Jon Hopkins in London and Masayuki Kitano in Singapore; Editing by Richard Borsuk)